Hi there,
I’m a market maker, mainly on Solana. I was one of the top MMs on Mango before it went offline. I’ve been talking with Ivan about providing liquidity for stSOL on Openbook and he suggested that I make a proposal for a grant. Before I get into the proposal and why we think it makes sense, maybe I should give some background/context. You can also just jump to the proposal section at the end (in bold).
Context/background:
Serum - Used to be the main spot market exchange on Solana and was started by FTX. Other projects like Mango and Raydium were built on top of Serum.
Mango -pretty much the most advanced DEX I’ve seen so far, full orderbook exchange offering PERPs, margin trading and lending/borrowing. This is where I started and came to know other people in the ecosystem.
Raydium - an AMM that is built on Serum.
Jupiter - A swapping platform that is an aggregator that gives you the best price for any pair by looking at pretty much all AMMs and exchanges on Solana.
Openbook:
After what happened to FTX, the community wanted to distance itself from FTX-related or FTX-controlled projects like Serum. Openbook is the fork of Serum that has no connection to FTX. It was led by Max Schneider and a small group of people. I was one of the people that helped bring it up and my role was/is to provide liquidity. I was the first to quote there and I currently have the vast majority of the volume.
The transition to openbook was very quick, I was quoting in less than 3 days of us starting to work on the project. Within a week, Raydium had moved, Jupiter integrated and Jump trading started quoting too.
Here is an article from Wired on the initiative:
Some relevant tweets from Max and myself from that article
Here is the volume data for Openbook, you can see I usually have 60%-80% of the entire exchange’s maker volume, the next is Jump at ~20%.
To trade on openbook, most people would just use jup.ag and it will sometimes suggest openbook when it has the best price. You can also trade directly by using a UI like this.
Openbook lets anyone build a UI and host it and earn some fees. The idea of the project is to be transparent and support the ecosystem.
Proposal:
I want to bring more pairs to openbook, so I’d like to start quoting stSOL/SOL pair.
I was introduced to Ivan by Soju, I first talked with Ivan about taking a loan so that I can start quoting stSOL and SOL. Normally, MMs would ask for a fee as well as the “inventory” (assets) to quote the token, but I only wanted the inventory.
I already have a deal like this with Marinade, their mSOL token is similar to stSOL. You can see me quoting mSOL/USDC here with their inventory here. I’m the only MM right now.
I have done this many times with others and not only Marinade, so there a few people that can vouch for me on Solana, including Max Schneider and Daffy (Mango founder). However, Ivan suggested that I, instead, apply for a grant for a smaller amount and then I use that to quote and if it looks good, we can take it from there.
I would suggest a grant of 1k stSOL and 1k SOL. For comparison, Marinade gave me 2.6k mSOL.
Why this is good for Lido:
- Providing liquidity means it’s easier to buy/sell/stake/unstake stSOL on Solana.
- Helping Openbook helps the ecosystem on Solana which is good for all of us.
- You can always view my live quoting online on openserum.io and see if my prices are good on jup.ag relative to other venues (mostly AMMs).
I also wanted to cover a point that Ivan discussed with me offline. This is about using an AMM vs a real market maker.
In summary, AMMs originated on Ethereum because the transaction speed is very low so it’s an approximate solution to what a real MM does. AMMs are simple to use and are fully onchain and they don’t need a fast blockchain at all. However, they sacrifice a lot to achieve that, they are extremely inefficient in terms of PnL.
AMMs are unaware of actual market price and the outside world e.g. if stSOL has a significant change in price because someone staked a large amount of SOL, an AMM will continue letting users buy at the current price and essentially buy at a discount until the price is pushed all the way to what it should be, whereas a real MM would simply quote a new price that reflects what they think is the correct market price.
AMMs only make money when most of the flow is retail (normal users buying/selling) and the market is going sideways (zigzag), but when there’s a lot of bots and the market is moving mostly in one direction, they lose money and they call that “impermanent” loss i.e. loss/negative PnL On Solana, AMMs don’t make much sense, because we have the speed to have an orderbook exchange like Serum/openbook/Mango which can have a simple interface (like jup.ag) to swap for users so you still offer the ease of use to retail users.
Thanks,
spacemonkey